Sales tax plan is dead

PROVIDENCE — Gov. Lincoln Chafee’s plan to radically overhaul the state’s sales tax structure is effectively dead.
After more than six hours of nearly unanimous testimony denouncing Chafee’s proposal to lower the state sales tax from 7 to 6 percent and broaden it to a vast array of goods and services that are now exempt, House Speaker Gordon Fox had heard enough.
Fox issued a written statement shortly after the finance committee adjourned saying “Governor Chafee's proposed multi-tiered sales tax approach is unacceptable … After speaking with a majority of House members, we will not support the current proposal.”
“The House will not pass the budget in its current form,” the Speaker announced. “We will instead develop alternatives to this proposal and will continue to work with the Governor to amend his budget submission.”
“I have been extremely troubled by this sales tax plan since its submission on March 8,” Fox said. “However, I wanted to give our House Finance Committee and fiscal staff the opportunity to carefully review it and provide the public with an opportunity to weigh in, which was done today. There has also been overwhelming opposition expressed to me by House members, the business community, and by thousands of average citizens who have contacted the offices of House leadership and Finance Committee Chairman Helio Melo” of East Providence.
Fox characterized as “particularly offensive” the part of the governor’s plan that would tax certain currently exempt items such as home heating oil, water for home use consumption and
taxes impacting the manufacturing industry at 1 percent.
Spokesman Larry Berman said Fox had been monitoring the finance committee meeting throughout the day on Capitol TV and that prompted him to pull the plug on the idea before it went any further.
Fox’s conclusion was a bi-partisan one.
On Tuesday, House Minority Leader Robert Watson, using similar language, wrote a letter to Chafee on behalf of the Republican caucus that said: “This budget is simply not acceptable.”
“We respectfully ask that instead of wasting further time trying to promote this budget, we should immediately get to work on a new plan that reduces state spending to sustainable levels and provides much more relief to cities and towns that are facing a similar financial squeeze,” Watson’s letter read.
He wrote that House Republicans “had a number of immediate concerns” when Chafee introduced his budget and “five weeks of close study have revealed that this budget is even worse than we feared.”
Hours later, Chafee apparently ran up the white flag. Rather than mounting a fight to save his proposal, the governor’s office issued a terse statement that said, “I look forward to working with Chairman Melo and Speaker Fox to advance an honest, responsible budget that fixes our chronic structural deficits and puts Rhode Island on a path to prosperity."
Chafee had told reporters on Tuesday that Federal Reserve Chairman Ben Bernanke had recommended to the nation’s governors last February that they lower their sales taxes and broaden them to apply to more items. By that time, Chafee said, his budgeters were already working on the plan to do just that.
In an interview on Tuesday, Chafee said he hoped that by the time the May revenue and caseload estimating conference rolled around the legislature could further lower the sales tax rate to 5.75 or even 5.5 percent.
But virtually nobody had a good word to say about the governor’s plan at the marathon finance committee hearing Tuesday.
Businesspeople from computer software engineers to farmers, newspapermen to optometrists, hairstylists to employment staffing agency executives waited for hours to tell committee members that they anticipated the plan would have effects on their companies ranging from merely detrimental to nearly apocalyptic. Some said their businesses would lose money, others said they would be forced to lay off employees, still others said they would have to move out of state or close up shop altogether.
Not only would they have to charge their customers the tax, a number of the businesspeople said, but their businesses would have to pay the tax to obtain goods and supplies. There would also be the burden of collecting, accounting for, and remitting the tax money to the state each month.
The session was more than four and a half hours old before the first person stepped forward to offer support for the Chafee plan. Even then, the best Kate Brewster of The Poverty Institute could muster was to say that the proposal is “not perfect, but a step in the right direction.”
The only other witness to step forward to support the Chafee plan, Kate Brock of Ocean State Action, called it “ambitious and imperfect.”
Gary Sasse, who headed the Department of Revenue and Department of Administration for former Gov. Donald Carceiri and for years was director of the business-backed RI Public Expenditure Council said Chafee’s plan “fails to meet the test of fairness, it fails to meet the test of economic competitiveness, efficiency, transparency and administrative simplicity.”